ISM: Manufacturing Activity Edges Higher in February, Challenges Remain

By March 1, 2013Economy

The Institute for Supply Management’s purchasing managers’ index (PMI) rose much stronger than expected in February, up from 53.1 in January to 54.2 in February. The consensus estimate had been for the PMI to decline to around 52.5. Today’s report is similar to the results observed last week when Markit announced its Flash PMI data for the United States.

In both cases, the principal driver was higher sales. The index for new orders rose from 53.3 to 57.8. This was the second month of expanding orders, which is a good sign that manufacturing activity has picked up so far in 2013. This includes export orders, with its index rising from 50.5 to 53.5. Shipments data were also strongly higher, up from 53.6 to 57.6.

Most of the subcomponents provide better news about the manufacturing sector, but one exception is the pace of hiring. The employment index dropped from 54.0 to 52.6, suggesting that the pace of growth has slowed. This is consistent with other data which have shown hiring growth continuing to lag behind.

One other caveat of note was the escalation in pricing pressures. The index for the prices paid for raw materials jumped from 56.5 to 61.5, its fastest pace since this time last year.

The sample comments reflected the positive numbers, but they also provided a degree of cautiousness. A wood products manufacturer summarized, “Demand indicators are robust. Supply is constrained. Pricing is escalated.” Other comments tended to reflect the pickup in activity, consistent with the optimism in the PMI data. Still, challenges were noted. A computer and electronic products respondent referred to slowdown in defense spending, and a transportation equipment maker mentioned weaker demand in Europe as a result of their continuing economic woes.

The February report suggests that some of the weaknesses experienced in the second half of 2012 are beginning to dissipate, with higher levels of sales and production signaling a pickup in manufacturing activity to begin 2013. But there are continuing headwinds including across-the-board fiscal budget cuts, some challenges overseas which could impact export growth and higher energy costs. Importantly we are not seeing the growth in employment we need to see to get our economy back on solid footing.

Chad Moutray is chief economist, National Association of Manufacturers.


 

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM), where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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